In this episode of Frugal Living, host Jim Markus talks with Marc Bautis, a fiduciary financial advisor and host of the Agent of Wealth podcast. You can listen to Frugal Living with Jim Markus on Apple Podcasts, on Spotify, on Amazon, on Anchor.fm, iHeartRadio or anywhere you go to find podcasts.
Why Talk with a Fiduciary Financial Advisor?
Bautis explains that there are two main reasons people seek out financial advice: They lack time and the background in finances to navigate the ins and outs of the subject on their own. Money can be a sensitive topic, and people may not always feel comfortable talking about it. However, just about everyone could benefit from some expert assistance.
Contrary to what some people think, a financial advisor isn’t just going to tell you to cut your spending. The goal is to create visibility and transparency about where your money is going so you can make more informed decisions about your spending. Bautis says you can still spend lavishly on the things that make you happy and make sound financial decisions.
Budget Isn’t a Dirty Word
Budgeting, Bautis explains, isn’t about finding ways to cut things out of your life. It’s about creating a framework to help you live the life you want to live and achieve your financial goals. The first step to doing this is figuring out your priorities. For example, you might want to spend $20,000 on travel each year, buy expensive cars, or make sure your kids’ education is paid for. How you would go about achieving each of those goals is different. That’s where a financial advisor’s expertise can help you.
After you’ve articulated your priorities, you look at where your money is currently going by creating a budget of your current spending. Once you have the picture of where you are and know where you want to go, you can adjust your spending over time to align with your goals. In short, you can think of budgets as goal-oriented plans for your future.
Read a Transcript of this Episode
Jim (00:02):
This is Frugal Living. Money. It’s a taboo subject maybe because it’s so personal and pervasive. Wealth–personal and generational–influences where we live, what we eat, who we spend our time with. Finances impact just about every part of our lives. That’s why I was so excited to talk to Mark Bautis. He’s a fiduciary financial advisor and the founder of Bautis Financial. As we do with some of our longer conversations, this is split into two episodes. Here’s part one of our conversation.
Mark (00:50):
Hi, I’m Mark Bautis, financial advisor at Bautis Financial and also the host of the Agent Wealth podcast.
Jim (00:57):
So, Mark, thanks again. I had a lot of fun being on your podcast and chatting with you about frugality. And now I’m hoping to pick your brain about your incredible experience in the world of, you know, financial advice. This is your profession.
Mark (01:12):
Cool. Looking forward to it.
Jim (01:14):
The best place to start is I like to assume my audience doesn’t have a financial advisor in their life already, you know, aside from my voice in their ear. What can someone expect when they meet with someone who’s a professional when they have fiduciary responsibility for your finances?
Mark (01:31):
Two of the main reasons why people come to a financial advisor is time and education or knowledge. Right? So we, we have things that are, you know, a priority to us. For most people, it’s not looking at spreadsheets, tracking markets, and, you know, looking–reading Google research on all topics financial that are always changing. So, you know, they wanna spend time with their family or they may have a hobby or a passion that they’re into. And then there’s knowledge. Like I mentioned that, you know, things change all the time in the financial world. You know, you just look at, like, the IRS code as an example. It’s like a thousand pages of sleeping material, but, you know, and that’s just one part of it–taxes. So there’s all kinds of different, you know, things that as a financial professional, we have to stay on top of. But I think, you know, what we’ve seen… People come to us and it’s really, they just wanna put some structure around their finances. And I think, at the highest level, that’s what we help. You know, we help making sure that they’re making the right decisions with their money or people have transparency into what they’re doing. You know, you’d be surprised about… You know, you ask someone a question, well, put some structure, put some organization, we need to… Where’s your money going? And people just don’t even understand. Whether it’s month to month or year to year, what are they spending on things? And getting that structure or that organization I think really can set someone on the right path to where they’re trying to go. So it’s like that, we put that roadmap together for them.
Jim (02:54):
That’s really good. One of the conversations we have often on this podcast is the idea that we aren’t talking about money as much as we should. This is almost a taboo topic and “frugal” for some reason has become, like, a bad word. But what I’m hearing you say is one, you help people evaluate where their money is already going. And two, you develop a plan for the future.
Mark (03:21):
Yeah, that, that’s definitely correct. And, and I think I agree with you a hundred percent on, you know, “frugal”. It, it’s getting that stereotype of a bad word, just like “budget” is too. People, you know, they hear “budget” and they think automatically restriction. And it doesn’t necessarily mean that. I always–the way I promote it is, one, you wanna have visibility and transparency into where your money’s going because what you really wanna do… It’s, this is not about, you know, I’m spending $5 on coffee a day and I, I should cut back on that. If spending that $5 on coffee and–is really giving you happiness and it’s, it’s important to you, I tell people, “Do it.” I say, I tell ’em, “Spend lavishly on things that are important to you, but cut back on things that aren’t.” And I think that’s where people, you know, have that hang-up. One, people don’t wanna see what–they don’t, they don’t wanna face the reality of, “Okay, this is where my money’s going”. They know they probably have leaks in their, in their spending. But, you know, facing it, it’s a lot easier to just put your head in the sand then just hope it goes away or ignore it. But our philosophy is know the transparency and the visibility is helpful because we’ve done the exercise so many times with people and to, you know, just looking at where their money’s going. And so often, almost every time, that, you know, the people that we do it, they’re like, “Whoa, I didn’t realize I was spending this much here or this much here.” And it’s eye-opening at times. And again, going back, it’s not, “Cut back this, cut”… We don’t tell people cut back on anything. We tell them, “If you’re looking to retire at age 50, or if you want to have enough money, you know, to fully fund your kids’ education, here’s what you have to do.” And then it’s up to them to make that decision of, “Yes, I really want to do this and I know I have to save X amount to be able to, to do that.” So we don’t tell people to do this or do that. We just give them the transparency or the visibility, which we think helps them make the decisions to get to where they’re, they’re looking to go to.
Jim (05:07):
I like that because it’s goal oriented. You’re asking what’s important to you. And if what’s important to you is retiring early, your plan is going to look different than, you know, I… What’s important to me, maybe, is traveling the world and making the most of my time with, you know, young kids in my life. That is gonna look completely different than someone who wants to retire as quickly as possible.
Mark (05:30):
Yeah. If spending $20,000 a year on traveling is important, we’ll show them, “All right, this is how you can have $20,000 a year to travel. Or maybe they wanna buy high-priced, fancy cars. Nothing wrong with that. But it’s just, oftentimes there’s never an endless amount of money that people have coming in. So they do have to prioritize and they do have to make decisions and say, “This is really important and, you know, if,”–like you said, retiring at 50–“and I know if I wanna do that, here’s what I have to do this year and every year going forward to get there.” And that’s where we try and come in and, and put that roadmap together for them.
Jim (06:07):
That feels very comforting. The idea of, “Here’s the rules that you need to follow.” You know, you have this big goal, you have this dream of some sort, and you have someone helping you say, “These are the steps to get there.” That becomes a very realistic thing as opposed to just a nebulous idea of potential wealth or that car that you love. On the other side of things… And if this is a conversation you’re uncomfortable with, you know, let me know, we can go a different direction. But one of the things I’ve been thinking about a lot recently with conversations for Frugal Living is those of us who have lower-paying jobs, who don’t have the kind of opportunities that someone with, like, a salaried career might have… If you don’t have a job with benefits, if you have two part-time jobs, how does the conversation differ for someone in that position?
Mark (06:58):
Yeah. So there, there’s definitely a difference. And I’ll even put some context around that. I, I see plenty of people who come to me with very high-paying jobs who are in worse shape financially towards their goals than someone with a low-paying job. It’s all relative. And I’ll, I’ll, every time I meet with someone I’ll get, you know, for the first time they may outlay everything that they have going on. And naturally their question is, “How am I doing?” And reality is, it’s all relative. It’s what are they trying to do? I see people who are making half a million dollars a year, but spending $600,000 a year. And then vice versa. People who make, who are not making as much, but are saving a substantial amount of their salary. So, you know, the conversation obviously is different. And the other thing which you sort of mentioned in there is there’s also a difference if someone has variable income, right? So if someone, you know, maybe they have a W-2 paying job, they have a steady salary versus maybe someone who’s a freelancer, someone who has multiple jobs and they’re on a 1099. And they have to either one, you know, they… I’m a, a proponent of, you know, having a schedule or projecting out, for example, like, your spending. But what do you do if one month your income is really high and next month it’s not so high? So we do work with a lot of business owners in that category. And one thing we try and do is try and get them ahead of… Like, get their income ahead of their spending. We call it a variable-income fund where they, they save money to it. And what happens is on months where their income is low, they pull from that to pay for their expenses. And on months where their income is a little bit higher, they replenish it or they put back into it. So that’s how we handle the variable-income aspect of people’s income. But the second question is, well, what about a low? Let’s, uh, let’s say someone who is earning a low income. It’s gotta be, you know, it’s gotta be relative. This is, it’s not magic, right? There, there’s money that comes in and that money has to go to different places, right? You have your living expenses, you have taxes. And then you have this, kind of, section of things you want to do. Like, maybe it’s you wanna buy a house one day, or maybe it’s I wanna save for my kids’ college, or maybe I want to buy a vacation home or have a travel budget. And it really comes down to starting at the high level, taking the money that’s coming in and divvying that up into these different, different buckets. And, of course there’s gonna be rules of thumb that say, “All right, you shouldn’t spend more than this much per month on housing or this much on, on your car.” And, you know, again, going back to what we talked about earlier, it’s not so much about do this or do that. It’s, “If you do this, here’s what the result is on this section of things that you, you wanna do.” So, in some ways the approach is, is the same in that there’s money coming in and it has to go, it has to get divvied up properly or, you know, to the right places. But also, you know, there isn’t an extra twist if there is someone that does have income that varies month to month.
Jim (09:46):
That’s really good and this goes back to your very first statement. The idea of evaluate where you are first, look at where the money’s coming in, where it’s going out, and lay out that plan. And then determine your goals and you’ll build the answer in the middle of that somewhere.
Mark (10:04):
Yeah. And it’s all different dependent upon, you know, when someone starts looking at these things. Usually look at finances and we call it the three-legged stool. Really there’s three leg–the three legs of the stool are time. So that’s when someone really, you know, when do they start saving or, or putting structure around their finances? It’s different if someone starts when they’re 20 versus if someone starts when they’re 50. And you can argue that time, because of things like compounding and, and, and having that ability to catch up and save, you can argue that time is the best benefactor of having a successful financial life. There’s also the amount of savings. So I also talk about the importance of, of really understanding your savings ratio. And really this is simply just, you know, “How much am I saving?” But it’s relative to what your income is. You know, if someone says they’re saving 10,000 versus someone that says they’re saving a hundred thousand a year, you might automatically say the person that’s saving a hundred thousand’s in better shape. But again, it’s all relative. They might have a really big income where a hundred thousand’s not enough. So you wanna look at your savings ratio, which is simply the amount that you’re saving annually divided by your income that you’re coming in. And if we just use round numbers, let’s say someone is saving $10,000 a year and their income is a hundred thousand dollars a year. Their savings ratio is gonna be 10%. So then naturally the next question is, well, what’s a good savings ratio, right? And again, there’s no right answer to what the good savings ratio is. However, just to put some perspective around it, we work with some companies on their 401k plans. And when we start working with them on their 401k plan, we have, like, a first meeting where we talk to everyone about the importance of saving. And one of the things we say is if you start saving in your 401k from when, you know, let’s say you graduate college, right after you graduate college, if you put away 10% of your salary every year, you’ll be in pretty good shape to retire, let’s say, in your, in your sixties. Now not everyone’s plan is to retire when they’re 60. Some may say, “I wanna retire earlier. I wanna stop working earlier.” And then on the flip side, I’ve had people come to me and say, “I wanna die at my job and I never wanna, wanna retire.” So again, I, I would look at the savings ratio question in a couple different ways. One, the earlier you start with it, start tracking it, you know, the better you’ll be. And then I would look at it as a goal to increase that savings ratio over time. So even if, you know, maybe you’re at 3% savings ratio right now. And okay, it’s great that you’re saving something. There’s still a lot of people out there that save nothing, you know, save zero per year. But the way I would look at it is, “Okay, I’m 3% this year. Next year, my target is 5%.” And it’s easier doing it that way than… I’ve had people come and say, “Well, should I go cold turkey? And should I, I’m not saving anything now, but should I save 10% tomorrow?” Yeah, it, it, the answer is yes. If you could do it, it would be great. The problem is, with our behaviors and, and how emotional money is, it’s really difficult. What happens when you’re saving zero is that means you’re spending everything that comes in. And for someone to, to really go in and say, “All right, I’m gonna cut 10% of what I’m spending day one.” It’s pretty difficult to do. So maybe your, your income or your pay is going up over time. And it’s really easy to have that creep, that expense creep over time, too, where, “Yeah, my salary raised by 3%, but guess what? I’m gonna raise my expenses by 3% too.” One way to do it is keep your, try and keep your expenses as stable as possible. And just bank the, you know, save the, the extra salary increases per year. The other, you know, tactic that I recommend to people is–I call it a cut savings party. So, what this is, is simply, like, every three months or every six months or every month, whatever period that people do, that people want to do it. Take your credit card bill, look at line by line, and just answer the question, “Is this important to me or do I still want to keep this expense?” And if not, cross it off and figure out how to ca–you know, cancel that expense. And, you know, again, going back to the transparency and visibility, we don’t realize how much, you know… Whether it’s like these monthly subscriptions or, you know, just these one-time expenses. But, you look and they add up. They definitely add up. And, and the companies that charge ’em are not–they’re, they’re smart. They know that, you know, you think of it, “Oh, this is only gonna cost me $10 a month. Boom, let’s do it.” And then all of a sudden you got like ten of those, and you’re spending a significant amount per month. That adds up to a lot per, per year. So, you know, there’s different ways to, to, kind of, rein in, the, in the spending. But, you know, going back to my original… The original thought was just focus or track things, and that’s the best way to improve them. And savings, savings ratio is a great one to do.
Jim (14:40):
I wanna address two parts of what you just talked about. Savings rate is hugely important. And I love that we’re talking about that now. My favorite conversation around savings rate is the idea that if your goal is to retire as early as possible… Like, if your goal is fina–total financial independence, not having to work for anyone ever again, your savings rate goal should be a hundred percent. When you make money, you should be able to save a hundred percent of it and live off of your investments. I like looking at it that way because it takes age outta the equation. It’s maybe you’re comfortable saving 3% now, and maybe two years from now, you’re saving 20% because you’ve saved enough and your investments are building themselves. I like the idea that this brings into the conversation dividends. This brings into the conversation your investments and the money you’ll make off of your investments. That’s why we invest. But the other side of that, I know it can be very difficult. Like you said, when you have lifestyle creep, when you have an income jump, you know, maybe you got a 5% raise this year. If you wanna go out and celebrate, like, that’s a very normal, healthy thing to do. But it’s also a really good time to bump up the 401k or the Roth IRA, like, contributions. You’re not gonna notice it. You know, like, that’s why 1% increases every year at the very least are, it’s a no brainer. This is something we should all be doing. Hopefully you won’t even feel the difference when you see your paycheck when you’ve made the increase. But, you know, that’s the difference between 15% in five years and not having that 15%.
Mark (16:12):
Yeah, and a lot of 401ks are actually doing this automatically. So what they’re doing now to, kind of, promote this behavior, which, which you’re talking about, is they might automatically enroll you at 3%, right? So if you don’t do anything and you start a new job in the 401k that has this feature, you’re gonna get, you’re gonna start contributing 3% of your salary to your 401k, unless you opt out. And most people don’t take action on anything. So they’re gonna get enrolled, auto enrolled in their 401k. And then on top of that, a lot of new 401ks or, or a lot of 401ks, they have this auto escalation feature in it. So year one, you’re at 3%, but year two, you’re gonna be at four, year three at five, and, and on, and then it’ll have a cap. Maybe the cap is 10%. Maybe it’s 12%, maybe it’s 8%, but every year you’re gonna go up. And that’s a, it’s a good thing for a couple of reasons. You know, in addition to savings rate, the other thing on top of it is I’m a huge proponent of automation. Right? Because 401ks, you know, they, they came about and they took the place or the, for the most part, of pensions. And, you know, there’s, there’s a lot of, you know, back and forth on whether 401ks are good because it’s putting the onus on the worker to save for retirement versus pensions. But one thing that I’ve found is 401ks work if you, if you’re saving the money in it, and especially if you’re automating it. There’s so many people that I’ve come across where they’ll say, “Well, I started a 401k.” And, you know, they might not check it. And all of a sudden they look at it and they’re like, “Whoa, I didn’t realize that I have this much saved in my 401k.” And that’s the beauty of the automation because the money comes out before it hits your net pay, before it hits your paycheck. So you, you know, even if you don’t have some elaborate financial planning structure in place, you have to figure out how to learn to pay your expenses without that 401k contribution. And ultimately people can understand that. And most people do. So that, that’s why I’m a huge proponent. Whether it’s a 401k or any type of, of savings, even, even on the flip side, on paying down debt, I’m a proponent of the automation as well. So, you know, one of, like, the, my favorite things is how can we set up automation for someone? If someone comes to me and say, say, “Yeah, I wanna, I wanna save towards this.” One of the things we’ll look at, first thing we’ll look at is, “Okay, can we set up some kind of monthly saving ve–” You know, into whatever the vehicle is. Whether it’s a Roth IRA, whether it’s just a regular savings account or a CD or something. The, the key is really to get start, to get started. Because everyone will always say, “Well, you know, I just need to cut back a little expenses and maybe we can start next month.” And what I tell people is, “You know what, even if it’s $50 a month, start. Get started. Get in the bit of moving money automatically from A to B. And B being, you know, some kind of good savings, savings vehicle. And then every time we would meet substantially, after that, we would look and say, “Okay, you’re saving $50. Can we bump it to a hundred? Or can we bump it to 150 or, you know, can we bump it up?” And, you know, usually someone that has that goal in mind, they can take the really small, incremental changes over time. Versus, if we, you know, looked at it and said, “Well, you wanna, wanna retire now. You need to start saving, you know, $2,000 a month.” And it just may be so overwhelming that they just throw up their hands and say, “Nope, can’t do it. And I’m just gonna go back to, to where I am.” So automation’s another thing that I’m a big proponent of.
Jim (19:33):
This is one of my favorite topics. I love the idea of automation. When I think about personal finance, it really helped me to look at myself as, like, a business. Like, you know, a business is really, you know, it’s a spreadsheet of ins and outs. But, it’s also all these best practices. You talk about how you have these recurring subscriptions and how that’s good for a business. I love the idea that we can invert that and use it ourselves. You know, set up auto deductions. Set up, you know, auto savings. Like you said, this is already happening with your 401k. 401ks and, you know, financial institutions that run these 401ks are a big business and they know that it works. And they know that they’ll be able to manage more money if people save more. And, you know, lucky for us, that’s really good news for us too. If you have a 401k, it’s good to have that bit of manipulation in, you know, your financial planning. And it’s even more fun to take that into your own hands and say, “Okay, now I’ve started an investment account and here’s my auto deductions from my paycheck into a specific account for that.” That’s a really cool thing. I wanna go back before I forget to one other thing you talked about: this cost cutting party, this savings party. This is a wonderful idea. And I love the idea of getting together with, you know, anyone involved in your, in these types of conversations, whether that’s a spouse or a close friend, and just sitting down with, like, a credit card statement and saying, “Okay, well, this one comes up all the time. Do you use it? Do I use it? Do we share a Netflix password? You know, like, can we get rid of this?” I like that.
Mark (21:05):
Yeah, I always wanna look at it from, “Okay, what’s the impact if this went away? Are we really gonna be impacted?” And even, you know, some people will bring their kids into it as well and give their kids some framework around it or some structure and say, “Well, you don’t get both. You can pick one of these two things.” And maybe it’s, you know, Netflix or Disney subscription. And, you know, they have to pick one of the two. But, you know, it can go back to just building habits. And I, I gave the time periods of doing it, whether it’s every month. Every month might be a little bit too frequently, but every three months or every six months. Because things change. And, you know, you can acquire a lot of different charges over that month period. So it’s, I think it’s worthwhile doing. And, you know, I talked about the cost-cutting party. But even a step higher than that is, at a high level, just see where your money’s going. You know, I’m a proponent of both. So looking at it from the high level and having some high-level categorization of your expenses. But then also looking at each individual expense and making that decision of whether it’s something to do or not to do. And then with the first one, with the high-level expenditures, you know, it used to be, “All right, I’d have to make a spreadsheet and I’d have to track every single expenditure and then write some little, you know, categorization formula in my spreadsheet.” And all of a sudden, you know, it became a pretty significant thing to do. And people just threw up their hands and said, I’m not gonna do it.
Jim (22:33):
Special thanks to Mark Bautis, a real resource for financial knowledge, and our audio editor intern, Jenny Blauvels. Please tune in to the next episode to hear the second part of this interview. Frugal Living is sponsored by Brad’s Deals. That’s B R A D S D E A L S.com. E a L s.com.
More about Frugal Living with Jim Markus
To hear more from Marc Bautis, check out the latest episode of Frugal Living. Frugal Living is a podcast for smart consumers. How do you spend less and get more? The show, sponsored by Brad’s Deals, features interviews, stories, tips, and tricks. Jim Markus hosts season four, out now.
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